Friday, June 04, 2010

New learning mantra: Borrow to study

More students in India are opting for education loans to meet the cost of higher education than ever before. In nine months, between April and December 2009, banks gave out Rs. 35,000 crore (Rs. 350 billion) in education loans, 20 per cent more than they did in the entire financial year of 2008-09. Rising cost of education, easy availability of loans and the growing ability of borrowers to repay are the reasons cited for the increase.

Banks expect education loans to grow by 40 per cent or more every year. "Our education portfolio grew over 40 per cent in 2009- 10. We expect the portfolio to sustain that growth or even surpass it in the next few years,“ said T.M. Bhasin, Chairman & Managing Director, Indian Bank. The bank had by December 2009 given loans to 18,60,000 students, compared to 15,27,000 in 2008.

Expansion in the education sector has also fuelled the demand for loans. In the last three years alone, eight new Indian Institutes of Technology (IITs), 12 central universities and seven more Indian Institutes of Management (IIMs) have come up. IIM-Ahmedabad now charges Rs. 13,70,000 for its post-graduate program. In 2007, the fee was Rs. 400,000. The IITs have proposed an eight-fold increase in fees from Rs. 50,000 to Rs. 400,000 a year.

Self-financing private institutions account for 80 per cent of engineering and more than 50 per cent seats in medicine. "Most of our loan disbursement is concentrated in Tamil Nadu, Andhra Pradesh and Karnataka, which have a huge share of private institutions", said Indian Bank's Bhasin. Confident of getting their money back, banks are willing to lend. "If a student completes a course, there is reasonable hope that he will get a job and repay", said T.Y. Prabhu, Chairman & Managing Director, Oriental Bank of Commerce.

Article by Swaha Sahoo in Hindustan Times, June 4, 2010

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